PSG Asset management

June 2016

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“Is this in the best long term interests of our investors?”

Our Primary Role: Stewardship

Our framework for answering this question:

Think and act long term

Be prudent in deploying our clients’ assets

Have an obsessive focus on research

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Simple, comprehensive suite of products

3

PSG Money Market

PSG Diversified Income

PSG Balanced

PSG Flexible

PSG EquityPSG SA Equity

Average Risk

Retu

rns

PSG Global Equity

PSG Stable PSG Global Flexible

PSG Income

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Our team

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PSG Asset Management: Consistent long-term returns

Source : Morningstar, PSG Asset Management, January 2016* - PSG Equity : JSE All Share, PSG Flexible: CPI + 6%, PSG Balanced: CPI + 5%, PSG Stable: CPI + 3%, PSG Diversified Income: CPI+1%.

PSG Equity A PSG Flexible PSG Balanced A PSG Stable PSG Diversified Income 5.00

7.00

9.00

11.00

13.00

15.00

17.00

19.00

Since Inception returns

FundPeersBenchmark*

Annu

alise

d Re

turn

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Equity Team: Awards

2004: S&P – Sector award : Flexible sector (3 years)2004: S&P – Sector award: Growth sector (1 year)2005: Raging bull – Sector award: General Equity (3 years)2006: S&P – Sector award: General Equity (3 years)2010: Raging bull – Sector award : Flexible (3 years)2010: Raging bull – Best domestic AA Flexible fund (5 years)2011: Raging bull – Sector award: General Equity (3 years)2011: Raging bull – Best broad-based domestic Equity fund (3 years)2011: Raging bull – Best domestic AA Flexible fund (5 years)2014: Raging bull – Best domestic Multi-Asset High Equity fund (5 years)2016: Morningstar – 3rd place best fund house: larger fund range category

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Equity process

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Moat

ManagementMargin of Safety

QUALITY

PRICE

Our Equity Philosophy A simple checklist to help us identify mispriced securities

We look for high quality companies which are not overvalued

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Fund mangers can exercise own discretion, but use the Buy List as their main tool for portfolio construction. Fund managers take responsibility for their fund’s performance.

PSG Asset Management: Equity process

FUNDS

BUYLISTS

FUNDAMENTAL ANALYSIS

IDEA GENERATION

INVESTMENT UNIVERSE

PHILOSOPHY Moat, Management & Margin of Safety

Local & Global Companies.

Proprietary screens, company results to find potential opportunities.

Detailed analysis on potential opportunities in terms of our investment philosophy.

Investment Committee determines domestic & offshore buy lists by means of majority vote.

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0%

20%

40%

60%

80%

100%

120%

EquitySA Equity

Flexible

Balanced

Stable

Diversified Income

Global Equity

Global Flexible

Equi

ty E

xpos

ure

99%

92%

99%

99%

99%

99%

98%

93%

Process complianceOur funds have a significant overlap with our Buy Lists

PSG AM Internal, 31/12/2015Bubble Size = number of equity holdings

Conviction level Suggested weightBuy High 6% - 10%Buy Medium 3%-6%Buy Low 0%-3%

Overlap with Buy List

Fund Equity Holding Overlap with PSGAM Buy Lists

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Equity process applied

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The market cycleValue investing : buying with a margin of safety

Source : PSGAM, Bloomberg (12.5.2015).

Greed

Fear

Intrinsic value

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Our process revisitedPast high conviction opportunities

18.57%

15.22%

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Asset allocation

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Our universe of opportunities

2015 2016High quality/blue chip SA equities are expensive

Government bonds expensive

Property expensive

Offshore equities still a good opportunity

Growing opportunity in cyclical equities

Cash is under-appreciated

A review of what we said last year and our current thinking

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Asset allocation processBased on thorough bottom-up research

Thorough bottom-up research

Fixed Income Investment CommitteeEquity Investment Committee Credit Investment Committee

Funds

Fund managers consider all opportunities on a risk-return basis

Buy lists calibrated for level of conviction

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2015 in review

• Our asset allocation has been spot on:- Maximum offshore- Very high levels of cash

• We were early into cyclical equities.• A short term drawdown in part of the portfolio does not constitute a permanent

capital loss.• We have been employing cash across the asset curve as opportunities arose in recent

months

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Example: Allocating assets

Source: PSG Asset Management Research

Objective : Buying low and selling high

Nov-04 Jul-05 Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10 Jul-11 Mar-12 Nov-12 Jul-13 Mar-14 Nov-14 Jul-150%

20%

40%

60%

80%

100%

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

% Cash PE - Fund PE - ALSI

Asse

t allo

catio

n %

PE R

atio

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Examples of recent opportunities

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2012 2013 2013 2014 2014 2015 2015 7.50

8.50

9.50

10.50

11.50

12.50

13.50

14.50 Price Earnings ratio: Basket of cyclical stocks

Opportunities in equities: Cyclical sharesThese companies are now trading at exceptionally attractive valuations

Source: PSG Asset Management Research; Bloomberg

10 year average

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2011 2012 2013 2014 2015 17.00

19.00

21.00

23.00

25.00

27.00

Where one should be careful: Selected blue chipsP:E of a basket of blue chips: Well beyond their 10-year average

Source: PSG Asset Management Research

10 year average

22

Copyright © PSG

Property looking more attractive

Jun 05 Mar 06 Dec 06 Sep 07 Jun 08 Mar 09 Dec 09 Sep 10 Jun 11 Mar 12 Dec 12 Sep 13 Jun 14 Mar 15 Dec 15-40%

-20%

0%

20%

40%

60%

Prem/disc to NAV

Growthpoint trading at a discount to its NAV for the first time in years

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0 1 2 3 4 54.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

1Yr NCD[Y VALUE]

3Yr NCD[Y VALUE]

5Yr NCD[Y VALUE]

5.45%5.93%

6.56%

NCD Yields: Apr-2013 2016 Expected Core inflation : 5.4% NCD Yields: Dec-2015Years to Maturity

Yiel

d to

Mat

urity

An opportunity in cashSouth African Fixed rate NCDs

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Nominal Bonds are looking more attractiveRSA Nominal bonds

Source: PSG Asset Management

0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.03%

4%

5%

6%

7%

8%

9%

10%

11%

R2079.3%

R1869.8%

R20910.2%

R2075.5%

R1866.4%

R2097.3%

Bond Yields: Apr-2013 2016 Expected Core inflation : 5.4% Bond Yields: Dec-2015

Years to Maturity

Yiel

d to

Mat

urity

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Our Funds

Performance

30/Apr/2016 1 Month 3 Months 6 Months 1 Year 2 Year 3 Year 5 Year 10 Year Inception

Fund Fund Size Return Rank

Coun

t Return

Rank

Count

Return Rank

Coun

t Return

Rank

Count

Return Rank

Coun

t Return

Rank

Count

Return Rank Count Return

Rank

Count

Date Return Rank

Coun

t

Core Funds

PSG Equity A R 2 163 277 363 3.70 18 159 18.80 11 156 4.14 22 151 -4.44 111 143 5.20 77 126 16.04 12 110 15.16 15 84 11.94 21 53 01-Mar-02 19.13 2 36

PSG Equity A BM (JSE All Share TR) - 1.70 8.89 -0.18 0.21 7.24 14.37 13.44 12.83 01-Mar-02 15.28

PSG SA Equity D R 40 292 319 4.55 8 160 21.84 3 157 2.87 26 152 -8.37 134 144 3.28 94 127 - - - - - - - - - 01-Nov-13 7.51 68 117

PSG SA Equity D BM (SWIX TR) - 1.25 9.74 1.28 -0.35 9.78 - - - 01-Nov-13 11.37

PSG Flexible R 7 615 315 059 1.63 13 70 12.57 4 68 6.60 5 68 5.24 10 67 10.31 14 59 17.07 6 53 15.25 11 47 15.18 3 30 01-Nov-04 17.58 2 13

PSG Flexible BM (CPI+6%) - 1.32 2.97 4.47 12.28 11.18 11.48 11.67 12.16 01-Nov-04 11.92

PSG Balanced A R 5 172 291 174 0.79 61 173 9.19 9 163 3.73 19 154 2.81 73 143 8.84 39 114 13.69 13 97 13.48 22 75 11.04 13 41 01-Jun-99 14.92 3 10

PSG Balanced A BM (CPI+5%) - 1.13 4.04 5.92 11.26 10.16 10.46 10.65 11.34 01-Jun-99 10.65

PSG Stable A R 2 544 335 177 0.91 19 139 5.12 8 135 4.03 6 128 5.95 31 122 7.92 50 98 9.22 41 90 - - - - - - 13-Sep-11 10.57 40 78

PSG Stable BM (CPI+3%) - 0.98 3.59 4.97 9.26 8.16 8.46 8.65 - 13-Sep-11 8.68

PSG Diversified Income R 974 356 979 0.46 64 79 2.10 54 79 3.70 20 78 7.40 22 71 7.35 20 64 7.46 8 54 7.62 12 40 7.86 9 22 11-Apr-06 7.84 9 22

PSG Diversified Income BM (CPI+1%) - 0.83 3.14 4.01 7.26 6.15 6.45 6.65 7.33 11-Apr-06 7.36

PSG Income E R 92 673 338 0.72 11 32 2.12 8 32 3.76 7 32 7.41 9 32 7.18 3 30 - - - - - - - - - 03-Sep-13 6.98 2 29

PSG Income E BM (STeFI Composite) - 0.57 1.70 3.36 6.67 6.43 - - - 03-Sep-13 6.17

PSG Money Market A R 5 716 089 637 0.57 21 27 1.70 22 27 3.38 20 27 6.68 18 27 6.45 10 26 6.01 11 25 5.72 14 24 7.26 7 17 01-Nov-98 8.62 3 6

PSG Money Market A BM (ASISA SA IB MM) - 0.59 1.75 3.41 6.68 6.38 6.01 5.75 7.27 01-Nov-98 8.61

PSG Money Market B R 5 716 089 637 0.61 6 28 1.80 6 28 3.58 3 28 7.10 1 28 6.86 1 27 6.41 1 26 6.10 1 25 - - - 03-Jan-11 6.09 1 25

PSG Money Market A BM (ASISA SA IB MM) - 0.59 1.75 3.41 6.68 6.38 6.01 5.75 7.27 01-Nov-98 8.61

PSG Global Equity USD $ 11 162 656 3.33 32 687 16.63 13 683 1.29 77 666 -12.41 570 627 -6.08 471 536 1.40 360 473 0.62 285 381 - - - 23-Jul-10 3.02 321 351

PSG Global Equity BM (MSCI World Free NR) - 1.58 7.67 -1.05 -4.16 1.45 6.27 5.96 - 23-Jul-10 9.46

PSG Global Equity FF A R 104 621 673 -0.43 7 44 5.51 2 43 3.42 9 40 4.06 34 38 8.46 29 31 16.98 23 26 - - - - - - 05-May-11 15.30 20 21

PSG Global Equity FF BM (MSCI World Free NR) - -2.06 -3.97 1.63 13.63 17.72 23.74 - - 04-May-11 23.63

PSG Global Flexible USD A $ 109 446 692 3.32 12 136 16.24 5 134 2.86 12 127 -8.32 79 114 -3.61 70 94 2.19 18 80 - - - - - - 02-Jan-13 2.92 22 77

PSG Global Flexible A USD Acc BM (USCPI+6%) - 0.90 2.12 3.03 6.84 6.39 6.76 - - 02-Jan-13 7.04

PSG Global Flexible FF A R 557 388 407 -0.52 2 24 4.36 2 24 4.79 5 22 8.80 16 18 11.63 13 16 18.31 6 15 - - - - - - 10-Apr-13 18.43 8 15

PSG Global Flexible FF A BM (USCPI+6%) - -2.72 -8.92 5.83 26.68 23.44 24.31 - - 10-Apr-13 24.48

Data Source: MorningStar Direct 1st Quartile

Peer Group Ranking for Offshore in USD 2nd Quartile

3rd Quartile

4th Quartile

Light Blue - Monitored Closely

Dark Blue - Appropriate measurement period

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PSG Equity FundSector Allocation - Bias for mispriced quality, very attractively priced

COMPANY % PSG EQUITY

IMPERIAL HOLDINGS 7.50%GLENCORE PLC 7.43%

FIRSTRAND LIMITED 5.80%OLD MUTUAL PLC 5.46%

DISCOVERY HLDS LTD 4.96%GRINDROD LIMITED 3.92%

HUDACO INDUSTRIES 3.49%SOFTBANK CORP 3.41%

REUNERT LIMITED 3.18%CAPITAL ONE FIN CORP 3.17%

In 2016 we have reduced our exposure to global equities in favour of SA financials

There is little long-term risk in holding companies which offer: • Strong competitive positions• Proven aligned management • A margin of safety

10 Largest Equity Holdings

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PSG Flexible FundSector Allocation

COMPANY % PSG EQUITY

BERKSHIRE HATHAWAY 7.59%

SAINSBURY J PLC 5.00%

FIRSTRAND LIMITED 4.22%

IMPERIAL HOLDINGS 4.07%

CAPITEC BANK HOLDINGS LTD 3.17%

OLD MUTUAL PLC 2.92%

GLENCORE PLC 2.91%

DISCOVERY HLDS LTD 2.59%

SUPER GROUP LIMITED 2.53%

GRINDROD LIMITED 2.37%


% PSG EQUITY

Cash, Bond, Derivative & Money Market 30.51%

Non Equity Holdings

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PSG Balanced FundSector Allocation

There is little long-term risk in holding companies which offer: • Strong competitive positions• Proven aligned management • A margin of safety

COMPANY % PSG BALANCED





REUNERT LIMITED 2.76%


CAPITEC BANK HOLDINGS LTD 2.23%

GLENCORE PLC 1.78%

NEDBANK GROUP LTD 1.57%

GROUP FIVE LIMITED 1.50%


% PSG BALANCED

Bonds: + 7yrs 6.81%Bonds: 3-7yrs 6.96%Bonds: 1-3yrs 3.63%

Cash Instruments: 3-7yrs 6.09%Cash Instruments: 1-3yrs 2.67%

Cash, Bond, Derivative & Money Market <1yrs 10.49%

Non Equity Holdings

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PSG Stable FundSector Allocation

COMPANY % PSG BALANCED

BERKSHIRE HATHAWAY INC-CL B 2.40%

BROOKFIELD ASSET MANAGE-CL A 1.84%




SAINSBURY J PLC 1.54%

COLFAX CORP 1.48%



MICROSOFT CORP 1.37%


% PSG BALANCED

Bonds: + 7yrs 8.35%Bonds: 3-7yrs 7.21%Bonds: 1-3yrs 4.43%

Cash Instruments: 3-7yrs 12.98%Cash Instruments: 1-3yrs 18.53%

Cash, Bond, Derivative & Money Market <1yrs 13.15%

Non Equity Holdings

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Comments on Portfolio Positioning

• Bottom up stock selection• Bias for quality• Quality equities have been in very high demand and prices are high• Distressed pricing in cyclical businesses, even good businesses• We tend to be early• We expect very good long term returns from our equity portfolios

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Conclusion

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Conclusion

The context of the market backdrop is important:

• A long bull market in global equities• Majority of shares are sharply down from their recent highs.• Elevated valuations remain for quality defensives. We think they are overpriced.• Cyclical businesses have got very cheap.• We have been buyers of out-of-favour stocks that are mispriced:

• Mining & construction: Glencore, Anglo, Group 5.• Cyclical SA inc businesses: Imperial, Reunert, Super Group.• Financials: US and SA banks, Old Mutual, Discovery.

• We continue to see good opportunity within the global universe: Microsoft, Softbank.• We do not expect rand weakness to support returns to the same extent going forward. • We will be buyers of quality on the JSE when the margin of safety returns.• Our portfolios are extremely attractively priced: in both relative and absolute terms.

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Disclaimer

Disclaimer: Collective Investment Schemes in Securities (CIS) are generally medium to long-term investments. The value of participatory interests (units) or the investment may go down as well as up and past performance is not a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and script lending. Fluctuations or movements in the exchange rates may cause the value of underlying international investments to go up or down. Where foreign securities are included in a portfolio, the portfolio is exposed to risks such as potential constraints on liquidity and the repatriation of funds; macroeconomic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information. The portfolios may be capped at any time in order for them to be managed in accordance with their mandate. Fees and Performance: Prices are published daily and available on the website www.psg.co.za and in the daily newspapers. A schedule of fees and charges and maximum commissions is available on request from PSG Collective Investments Limited. Commission and incentives may be paid and, if so, are included in the overall costs. Forward pricing is used. Different classes of Participatory Interest can apply to these portfolios and are subject to different fees, charges and possibly dividend withholding tax and will thus have differing performances. Performance is calculated for the portfolio and individual investor performance may differ as a result thereof. All performance data for a lump sum, net of fees, include income and assumes reinvestment of income on a NAV-NAV basis. Source of performance: Figures quoted are from Morningstar Inc. Additional information: Additional information is available free of charge on the website and may include publications, brochures, application forms and annual reports. Company details: PSG Collective Investments Limited is registered as a CIS Manager with the Financial Services Board, and a member of the Association of Savings and Investments South Africa (ASISA) through its holdings company PSG Konsult Limited. The management of the portfolios is delegated to PSG Asset Management (Pty) Ltd, an authorized Financial Services Provider under the Financial Advisory and Intermediary Services Act 2002, FSP no 29524. PSG Asset Management (Pty) Ltd and PSG Collective Investments Limited are subsidiaries of PSG Group Limited. Money Market: The PSG Money Market Fund maintains a constant price and targeted at a constant value. The quoted yield is calculated by annualizing the average 7 day yield. A money market portfolio is not a bank deposit account. Excessive withdrawals from the portfolio may place the portfolio under liquidity pressures and in such circumstances a process of ring-fencing of withdrawal instructions and managed payouts over time may be followed. The total return to the investor is made up of interest received and any gain or loss made on any particular instrument. In most cases the return will merely have the effect of increasing or decreasing the daily yield but in the case of abnormal losses it can have the effect of reducing the capital value of the portfolio. Trustee: The Standard Bank of South Africa Limited, Main Tower, Standard Bank Centre, 2 Hertzog Boulevard, Cape Town, 8001. Tel: 021 401 2443. Email: [email protected]. Conflict of Interest Disclosure: The Fund may from time to time invest in a portfolio managed by a related party. PSG Collective Investments Limited or the Fund Manager may negotiate a discount in fees charged by the underlying portfolio. All discounts negotiated are re-invested in the Fund for the benefit of the investor. Neither PSG Collective Investments Limited nor PSG Asset Management retains any portion of such discount for their own accounts. The Fund Manager may use the brokerage services of a related party, PSG Securities Ltd. PSG Collective Investments Limited does not provide any guarantee either with respect to the capital or the return of the portfolio and can be contacted on 0800 600 168 or e-mail, [email protected]

http://www.psg.co.za/

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PSG Asset management

Investor Relations